Govt moves on franchises

FRANCHISES are gearing up for the most significant overhaul to the $128 billion sector since the introduction of the Franchising Code of Conduct in 1998, as the federal government moves to better protect the rights of franchisees.

Small Business Minister Craig Emerson said the reforms, outlined in a report released last week, place franchisees in a better position to understand the risks of entering franchising by giving them clearer information up-front about the terms and conditions of the system.

He said the government would draft legislation to protect franchisees from unconscionable conduct and false and misleading representations from unscrupulous franchisors while retaining for “good, honest franchisors”, the flexibility to make franchising a commercial success.

Under the changes, franchisors will have to provide prospective franchisees with a brief and simple document, which sets out their rights and responsibilities.

The document would complement current lengthy disclosure requirements under the franchising code and would emphasise the key costs, benefits and risks of the franchise system.

Also, franchisees would be protected through proposed laws that grant the Australian Competition and Consumer Commission the power to conduct random audits of franchisors.

Franchise Council of Australia executive director Steve Wright welcomed expanded powers for the ACCC and new rules covering good faith or unconscionable conduct.

“Anything that enhances confidence without giving onerous compliance requirements that stifle investment is welcomed,” Mr Wright told WA Business News.

ACCC chairman Graeme Samuel said the government’s decision to draft legislation was a “victory for good sense and good policy in the dynamic but often overlooked small business sector”.

Jim Penman, who according to WA Business News’ ‘Book of Lists’ owns the state’s largest franchise group, Jim’s Mowing, says the present legislation benefited franchisors and that franchisees were in need of a level playing field.

The master franchisor, who was involved in a battle with discontented Jim’s franchises over contract issues last year, has been a public supporter of reforms that give franchisees “a fair go”.

Auto Masters WA managing director Nigel Warr told WA Business News franchise disclosure documents often left many franchisees confused about what was required of them.

“Most people probably do understand what is required but at the time they are seeing through rose-coloured glasses and so they probably don’t read the lengthy documents too closely and don’t understand possibly the seriousness of what they’ve agreed to,” he said.

Mike Stringer, national franchisor for Housework Heroes and Car Care, believes the legislation was more relevant to top-end franchises and that ACCC’s audit powers would become a costly burden to the lower end of the market.